Setting the stage early in IP litigation to control expenses in later acts

The first article in this series discussed the importance of assembling a cast of supporting players that will provide value for in-house counsel facing IP litigation. The next step in this process is to lay the groundwork to ensure the ongoing litigation expenses are controllable and predictable. These concepts should assist in-house counsel to structure the early stages of the litigation so that the costs in the later stages are manageable.

Determine your level and scope of exposure

If your company is acting as the defendant, you can manage future expenses by taking steps to realistically determine your company’s level of exposure. This due diligence exercise will help to create a framework for your future settlement negotiations in light of this potential exposure. Meeting with key employees that understand and are familiar with the accused products or works is crucial to this analysis and should happen at the beginning of the litigation.

In the patent litigation context, an early meeting with accounting employees can help to determine how much the plaintiff might be able to recover in past damages for an accused product line. To determine the potential scope of future damages, meeting with the product line’s engineering team will help you determine if it is feasible to “design around” the plaintiff’s patent claims. Similarly, the marketing and business development team can be helpful in determining the scope of future damages based on whether the company plans to continue using/selling the accused products.

Involving outside counsel during this process can be expensive, but this expense is often a good investment because it allows your attorneys to be part of the initial investigation and offer different perspectives throughout the process. Additionally, your attorneys will have the benefit of meeting directly with the people that have the most important information. For example, often outside counsel should speak early on with the engineering team in order to expedite the process of finding prior art to support your patent invalidity defenses.

These steps will help you gain a better perspective on your company’s potential liability, which will help you make smart, economical decisions about which options to pursue in the later stages of the litigation, and how aggressively to pursue them.

Explore potential for early settlement

An obvious solution to decreasing future litigation costs is to negotiate with the opposing party and settle the litigation, when appropriate, prior to embarking on expensive activities such as discovery. If you have a realistic picture of your company’s potential exposure, you may be able to prevent these discovery costs if you can adequately demonstrate to the opposing party that your exposure is much less than they initially thought it might be. The data you collected during your initial meetings with your company’s employees can be used to convince the opposing party that litigation will not be cost effective for either party.

When your company is the plaintiff in the litigation, it is important to establish your company’s long term goals. These goals should influence your decisions throughout the litigation, and if clearly set, can help you avoid unnecessary expenses.

During the initial stages of the litigation, you should determine whether your company wants to permanently enjoin the defendant competitor or would prefer to license or sell the IP at issue in order to gain another revenue source. As obvious as this step sounds, it is an important consideration that any plaintiff in-house counsel should consider because of its future ramifications. You should meet with your company’s decision makers to ensure they understand the potential consequences of each option. For example, if the company chooses to seek damages in the form of lost profits, the company’s decision makers should understand that the opposing party will likely be able to review detailed financial information that the company may prefer not to be disclosed, even if subject to a protective order.

Dealing with non-practicing entities (patent cases)

Most in-house counsel are familiar with the recent rise in patent litigation brought by “non-practicing entities” (NPEs) — derisively known as “patent trolls.” The strategies above are particularly applicable to this class of plaintiffs because of their typical litigation strategy: make a settlement offer that is below your company's cost of litigating the matter.

In these situations, if you can quickly and adequately demonstrate that your company’s accused product line is being discontinued, its past sales are minimal, or you have strong prior art for invalidating the asserted patent, you will quickly reduce these plaintiffs’ hopes for the “pot of gold” of potential damages.

In a similar context, your selection of outside counsel in these situations is vital. These plaintiffs know the legal industry and are aware of typical billable rates. In-house counsel can decrease the plaintiff’s leverage in these situations by selecting outside counsel with reasonable billing rates and the ability to think creatively.

Additionally, time spent conducting research on the plaintiff and the patents at issue can be very useful in decreasing costs. This type of research can save time and expense by reusing prior defendants’ work product, prior art, and, if possible, settlement parameters. Similar savings also can be achieved by working cooperatively with counsel for other defendants who have been sued at the same time as your company, which is a common approach taken by NPEs.

As described above, a number of considerations are important for in-house counsel when structuring the early stages of the IP litigation matter so that the costs in the later stages are manageable.